FBP (Flexible Benefit Plan) is widely used as a tax saving tool by many companies. It allows employees to structure CTC components while offering employee benefits such as Conveyance and Medical Expenses. In other words, there is a basket of allowances from which the employee chooses the component he wants for financial wellbeing.
For many years now, organizations, whether big or small, have tinkered with the idea of flexible benefit plans.
A flexible benefits plan (FBP) allows your employees to have more control over their salary and benefits package. They can restructure components accordingly. Let’s see how this is achieved.
Flexible Benefits Plan Components in India
These components are broadly divided into two subcategories
The monthly component which is paid by the HR department on a monthly basis. These components include HRA, vehicle lease, etc.
The annual component is paid to the employee on a yearly basis, only when the employee claims it. For instance, fuel, telephone, book reimbursements etc.
Let’s discuss few in details
INR 30,000 per annum
Telephone/Internet expenses that you incur for the purpose of your employment can be submitted to your employer and a tax-free reimbursement of the same can be claimed.
✅Newspaper & periodicals
INR 30,000 per annum
Employees can claim reimbursement of expenses incurred on books, newspaper subscriptions, journals & so on.
INR 36,000 per annum
Allowance given to encourage research, training and other professional pursuits and employees can claim a tax exemption.
✅Leave travel allowance
Allowance given to the employee by employers for travel. The exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee. No expenses such as local conveyance, sightseeing, hotel accommodation, food, etc are eligible for this exemption. Availing LTA tax exemption is subject to certain terms and conditions.
✅Car maintenance allowance
It is commonly seen that the employer provides a car to ensure an easy commute for such employees. Irrespective the car is owned by an employee or employer, if the car is used only for business in the performance of office duties, then it will not be taxable. It's tax efficient to get a company owned car to claim full reimbursement for fuel, maintenance and driver’s salary. But, one should keep in mind, when the employer provides the car taxable perquisite, it is only limited to the specified limits.
How do flexible benefit plans help your employees?
If you are considering offering your employees flexible benefits, communicating the advantages of the plan is crucial. From the employees’ perspective, flexible benefits is a portion of the salary that can be received against different expenses to primarily save on income tax.
For example – Conveyance and Medical expenses are non-taxable components of CTC structures. Thus tax exemption can be availed against the productions of relevant receipts.
Way of Saving Tax
While implementing a flexible benefit plan requires that the employer implement an additional payroll deduction to cover costs of these benefits programs. This deduction is taken out of employees’ income before tax is calculated. This means that employees will actually save tax and have a larger take home salary.
How could employees avail Tax Exemption for the Flexible benefit components?
You can reduce your taxable salary and avail of tax exemption by declaring expenses and producing receipts under the Flexible Benefits head such as House Rents.
What happens when an Employee does not claim the Flexible Benefit component?
The amount that is unclaimed by the employee is denoted as Unclaimed. Income Tax would be calculated as applicable.
When does this amount get paid to the employee?
Some employers pay the Flexible Benefit Plan amount upfront and ask for receipts of the same at the financial year end. On not submitting the receipt, Income tax is deducted.
On the other hand, employers can deduct the Benefit amount from your monthly salary and it is reimbursed to you after you submit the receipts at the financial year end.
Every employee is unique, and so are their needs.Flexible Benefit Plan enables the admin as well as the employee to exercise a better experience of dispatching and structuring salaries. With a good FBP, both the parties are entitled to easy functioning and hassle-free customization.